Gold continued to move higher in the past two consecutive weeks, while it has already reached to a new monthly high in the past days. Gold’s upward momentum so far in April seems to be much steadier and more controlled compared to the previous month which may be a sign that some traders are using a more methodical approach to fundamental developments. In this report, we aim to present clearly the most significant topics surrounding the Gold market and provide a brief technical analysis with specific levels and trends identified.
Very evident is the positive correlation between the USD Index and Gold prices. More specifically, for the past weeks including the current, the correlation between the two instruments remains upwards. However, on a daily basis, the correlation becomes tricky to follow and traders are advised to be mindful of the risks involved. For example, positive US economic data on the 14th of April sent Gold prices lower and favored the greenback. Yet on the 18th of April during the early US session Gold prices climbed to a new monthly high and headed lower thereafter, while the USDIndex surged to a new multiyear high level during the same time. The US economy is currently facing the red-hot rising inflationary pressures which could be good for both Gold and the USD. Some comments by James Bullard the President of the Federal Reserve Bank of St. Louis on Monday seem to highlight the current concerns of mitigating inflationary pressures in the US, with an aggressive interest rate hike and reduction of the Fed’s Balance Sheet. Bullard’s comments even though very hawkish, are not be taken lightly from our point of view, as the current growth the US economy is undergoing with Employment, Industrial Production and Retail Sales as confirmed in the past week, are expected to continue to improve in 2022. Gold traders are aware that this economic expansion can force the Fed to take extraordinary action in the upcoming meeting in May. However, because the Fed is currently facing circumstances that have not been encountered in the past, some doubt whether the central bank will actually solve challenges or bring stabilization to the economy, are present. In this case economic risk which tends to support Gold prices could be elevated and may act as motivation to Gold traders.
On a different front we cannot ignore headlines coming in from the Russian war in Ukraine, where the situation could be possibly worsening. Russia is currently launching new campaigns in different parts of Ukraine, while the catastrophic circumstances are constantly displayed through media. The economic impact however on the Eurozone and the world is equally important as the risks seem to be spreading globally. Oil and Natural Gas prices have remained at very high levels pushing good prices higher for consumers. The sanctions imposed from most of the world on Russia have also led to some Financial institutions believing Russia maybe heading to an economic default. This subject remains key for the global economy and Gold traders are advised to keep an eye on the developments on this front.
As a preparation, for the days that follow we would like to highlight the most important economic releases from the US as they could create volatility for the Gold market. On the 21st of April, we get the weekly Initial Jobless claims and the April Philly Fed Business Index figures. A very interesting day unfolds on Friday the 22nd with the Flash PMI figures for April from various parts of the world including the US. Finally, on Tuesday the 26th of April we get the US Consumer Confidence figure for April.
Technical Analysis
XAUUSD H4 chart
In the most recent 4-hour sessions Gold had surged towards the (R1) 2000 resistance level but was unable to clearly test or breach it. The price action in the following sessions moved lower where Gold is trading currently, just above the (S1) 1970 support level. Since Gold has broken outside the range it had been moving within since mid-March from our point of view the trend has turned upwards. If the trend breaches the (R1) 2000 level, we could be seeing the momentum reaching higher for the (R2) 2020 resistance barrier. In the scenario of an intense bullish trend we could see traders turning their attention to the (R3) 2050 line which is an all-time high level tested briefly in March. On the contrary a possible return of the price action to the (S1) 1970 support level can signal some stabilization. However, if the price action falls below the (S1) we would be crossing into territory seen in previous weeks and a possible movement to the (S2) 1945 support level may be imminent. Our lowest level for this report is currently noted at the (S3) 1915 support hurdle which is the lowest level Gold has tested in April. Please note the RSI indicator below our chart is currently running across the 53-level implying some stabilization has formed in the most recent sessions. As noted, our personal view is for an upward bias for Gold’s trend.
